Bank-owned lessors should make sure
their parents fully understand and give consideration to the
economic value they add to the overall business, writes Derek
Soper, chairman of IAA-Advisory.
It is now clear that the ever increasing
complexity of financial products and markets plus the “what’s in it
for me” culture has lead us into the current crisis. The regulators
response in the form of Basle III poses greater challenges to our
industry as the banks struggle with the dilemma of which products
to restrict and which to give free reign to. I guess the question
we all need to reflect on is “what is the ability, or likelihood,
of bankers, regulators and supervisors to keep pace with what has
been happening and the real risks now being faced in returning the
banking system to a growth business. Banks and by definition the
parents of much of our great leasing industry are now facing
fatigue – even exhaustion; lack of capital and liquidity plus a
possible break up of their current business models. It has been
suggested that full compliance with Basle III will bring about
increases in lending rates of up to 20% of their current levels in
order to earn the same returns on capital as are being enjoyed at
present. Be that as it may, what is certain is that margins are on
the increase.
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An obvious response to the imposition of new
regulation is the reminder that current increases in costs are not
welcome. An alternative response, however, is to use them as a
lever for change and to adopt a business benefit in parallel to
achieving regulatory compliance.
As an industry we should go where the
spotlight shines and it is currently shining brightly on risk and
‘risk weighting’. Not to be feared by the leasing industry; risk is
where we can point to success and I would go so far as to say
‘sustained success’ over many years. Couple this with excellent
earnings and we should come out of the turmoil in good shape.
However we already know that many of the banks don’t quite see it
like that. A lack of capital is forcing many to consider the use of
their distribution channels and questioning how efficient they are;
where does leasing and asset finance fit into the matrix; should
there be a separate distribution channel, separate infrastructure,
different culture, or is merger inevitable?
How should the leasing industry greet this
increasing level of scrutiny? Is this a burden or opportunity for
strategic business change? Perhaps the time has come when the
banking ‘high flyers’ can be seen for their overuse and misuse, of
capital and the disastrous results. Hopefully the future will bring
less enthusiasm for the ‘esoteric’ and more for the old fashioned
asset finance products that we all know and love. After all, the
real world does not benefit from the securitisation and packaged
structures we have seen in recent times anywhere near as much as
from the financing of production equipment and infrastructure. The
question, and perhaps problem is, do the banks see it like
that?
Leasing companies are and have always been in
the business of making good profits and creating considerable
shareholder value and hopefully will be seen more in this light by
their parent organisations in the future. During the process of
increasing the quality and quantity of risk capital within the
banking system we will need to fight our corner, not necessarily
for independence but certainly for recognition of our long term
worth. When all the present problems have died down I hope the
bankers do not return to their so called ‘creative’ mode. It will
be all set for the tried and tested ‘asset financiers’ to get on
with the job we started over fifty years ago.
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By GlobalDataThe bottom line is that ‘over reaction’ to the
new regulations by our senior decision makers in the banking
industry could have a detrimental effect on the leasing and asset
finance business community. It can only be hoped, with more than a
little push from us all, that the banks fully understand and give
consideration to the economic value we add to their business; which
is after all virtually trouble free. Only then will the large
compliance expenditures be seen as a wonderful opportunity to ‘turn
off’ some of the ‘nonsense’ products in favour of the more basic
business products which drive profits and shareholder value.
